Even Google Can't Save the Flash Market - TheStreet

Even Google Can't Save the Flash Market

The search engine is reportedly trying out flash memory chips, but the move is not expected to lift the market.
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SAN FRANCISCO -- Even the hand of

Google

(GOOG) - Get Report

may not be enough to lift the flash memory industry out of its doldrums.

The search engine giant has reportedly begun integrating flash-memory chips into its servers, replacing some of the slower magnetic hard drives used for data storage.

The move would appear to be a major endorsement of so-called solid-state hard drives, a product on which much of the flash industry's hope of salvation is riding. But for all Google's size and influence, its newfound taste for flash won't wash away the negative economic conditions currently roiling the flash market, say analysts.

"It's a positive from a technology adoption standpoint, but you can't really look at it as an impact to the NAND flash market," says American Technology Research analyst Doug Freedman.

For one thing, he says, the market for back-end, corporate servers is just not large enough to alter the unfavorable supply-demand balance currently weighing on the flash business.

Prices of flash memory chips have been in freefall for more than a year, as a glut of the chips have flooded the market. While demand for flash chips is reasonably robust -- thanks to the popularity of

Apple's

(AAPL) - Get Report

iPods, which use flash chips to store digital music -- it has not been sufficient to keep pace with the massive silicon output from companies like

Samsung

,

Intel

(INTC) - Get Report

and Toshiba/

SanDisk

(SNDK)

, which manufacture flash memory through a joint venture.

Many of the flash makers are banking on new products to help demand catch up with the current oversupply. And solid-state hard drives are at the top of the list.

SanDisk,

Micron

(MU) - Get Report

, Samsung and Intel have all recently released solid-state hard drives designed for notebook PCs, touting the small-size and shock-resistance of flash chips as key advantages compared with traditional hard drives that use rotating magnetic disks to store and retrieve data.

Yet even with the recent drop in flash-chip prices, solid-state drives are significantly more expensive than their hard disk counterparts, which has limited their appeal. Most analysts don't see flash memory becoming affordable as a primary storage drive for a mainstream notebook PC until at least 2009.

The situation is different in the market for servers, though.

"I think the bigger need could be on the back-end first, and then laptops," says Raj Sharma, an analyst at Polestar Investments.

"The more mission-critical and the more performance-critical applications are going to be picked up first, because price is not that much of a consideration there," he says.

Moreover, because flash drives are more power-efficient than traditional hard drives, they can help lower energy bills, an increasingly important consideration for companies like Google that operate large banks of servers.

According to a report Monday in Taiwanese computer publication

DigiTimes

that cited anonymous sources, Google is

switching some of its servers to solid-state drives provided by Intel

, along with the corresponding controller chips from

Marvell

(MRVL) - Get Report

. Google, which is famous for building much of its technology infrastructure in-house, will take shipments of the flash drives late this quarter, according to the report.

Jim Handy, a memory analyst at Objective Analysis, says that flash memory drives provide the kind of speedy performance that's increasingly important for online services that focus on transaction processing, like credit card processing and up-to-the-second stock market information.

"These customers have been converting from hard disk drives to solid-state drives relatively quickly. So search engines are the next step," he says.

But Handy notes that solid-state drives are not being used to store the bulk of the server data, but rather, for caching frequently accessed information that requires near-instant response times.

That means flash drives designed for servers don't necessarily need huge capacities. And that means that the opening of a new server market won't be enough to soak up all the excess flash memory currently plaguing the industry.

The spread of flash drives in servers will be quick, says Handy, "but it's not going to be big enough that the guys who make the chips will feel any easing of the current crisis."

Of course, any extra demand is a welcome development for flash makers, particularly for Intel, whose overall financial results have been dragged down by the money-losing flash memory group for the

last two consecutive quarters

.

And doing business with Google could give Intel a more profitable outlet for its flash chips, since components for servers typically boast higher profit margins than for consumer devices.

Google may not save the flash industry, but it could provide a nice safety net for Intel.